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“We don’t have any evidence of people postponing their expenditure plans with a view to buying the same thing at lower prices; in other words we don’t see what is defined to be deflation,” Draghi said after a G20 meeting in Sydney.

“We are aware of the risks. The Governing Council is willing and ready to take any action in case these risks were to gain strength.”

Economists are divided over whether the Frankfurt-based ECB will increase stimulus to counter the risk of deflation after eurozone inflation slowed to 0.7% in January, less than half the bank’s 2% target.

Draghi said the council will have “the full set of information needed for deciding whether to act or not” by its next policy meeting on March 6 in Frankfurt, when it will publish a 2016 inflation projection for the first time.

He also spoke at length about signs of economic recovery in the eurozone, saying there are initial indications that confidence is returning and domestic demand is picking up.

“I have to be cautious about this because we are not seeing strong, unambiguous developments,” Draghi said. “We are seeing first signs of a development which, if protracted in time, could gain strength.”

Draghi said the inflation rate fell to similar levels after the Asian and Lehman Brothers crises. The drop in core inflation was mostly driven by the currency bloc’s crisis-hit countries, which was “not entirely unwelcome”, while global price changes for energy and food were also a factor, he said.

“You can explain the present level of inflation,” Draghi said, adding that medium-term price expectations are also “firmly anchored at 2%”.

The ECB’s benchmark rate is already at 0.25% and a cut may involve taking the deposit rate below its current level of zero, something council member Jens Weidmann described as “uncharted territory”.

“We don’t know what the reaction would be and what the effect is,” he told Bloomberg News in Sydney.
Weidmann did indicate his support for suspending sterilisation of the ECB’s historic bond purchases to increase liquidity and help reduce volatility on money markets.

“I wouldn’t rule out pausing sterilisation” of purchases made under the now-defunct Securities Markets Programme, said Weidmann, who heads Germany’s Bundesbank.

“If we’re discussing how to inject liquidity into the market, instead of creating a new instrument, the most straightforward manner would certainly be just to either pause the absorption operation or reduce them in size.”

Ending the liquidity drain would add about €175bn to the eurozone financial system.

Draghi said that while the ECB’s pledge to keep rates low for an extended period has helped to reduce money-market volatility, halting sterilisation is “one of the instruments we’re looking at”.

“We have several instruments for our monetary policy, one of which is what Jens has hinted at,” he said.

A worsening in the medium-term outlook for price stability would require a different response. “We look at that, we stand ready to act,” Draghi declared.